The Bull Market Is Coming: 2 Notable Artificial Intelligence (AI) Growth Stocks to Buy Now and Hold Long

The S&P 500 The benchmark index is just 7% off a record high, putting it on the brink of bull market territory. That threshold is noteworthy because the S&P 500 has returned an average of 285% over the past five bull markets, according to Yardeni Research, and many stocks will undoubtedly climb much higher in the future.

With this in mind, artificial intelligence (AI) is making waves from Main Street to Wall Street and will be a key growth driver during the next bull market. Indeed, Precedence Research expects AI software sales to grow 23% annually to $1.1 trillion by 2032.

Here are two notable AI growth stocks to buy now and hold for the long term.

1. HubSpot

hubspot (Hab -1.94%) A case study on the power of internal development and continuous innovation. What started as a single marketing application has evolved into a complete customer relationship management (CRM) suite. Its platform now includes productivity software for sales, service, marketing and operations teams, as well as solutions for content management and commerce. Those tools help businesses delight customers in every interaction.

Salesforce While CRM is the undisputed leader in the broader industry, HubSpot is the CRM leader in small businesses. This success was made possible by freemium pricing and a build-over-buy mentality. To illustrate, Salesforce assembled its CRM platform by leaning heavily on acquisitions, but HubSpot relied on internal innovation to create a seamlessly integrated and easy-to-use suite of software.

HubSpot had a solid third quarter despite ongoing macroeconomic challenges. Its customer base grew 23% year-over-year to 184,900, and average subscription revenue per customer was 2% higher. In turn, year-over-year revenue rose 25% to $529 million and non-GAAP (adjusted) earnings rose 205% to $1.34 per diluted share. Investors have good reason to believe the momentum will continue.

HubSpot is a recognized market leader in artificial intelligence (AI) sales assistant software, but the company recently announced new AI products that will automate workflows on its CRM platform. They include generative AI tools that can create marketing campaigns, social media content and entire websites in response to natural language prompts. Those products will reach general availability next year, but from Brad Sills Bank of America HubSpot has already designated it as a top pick in AI stocks.

With that in mind, HubSpot projects its addressable market to be worth $77 billion by 2028, which should provide plenty of upside for investors. And with shares trading at 13.5 times sales, a discount to the three-year average of 17.3 times sales, now is a good time to buy a short position in this growth stock.

2. Arista Networks

Arista Networks (Anet -0.50%) Provides high-speed networking equipment and software for cloud and enterprise data centers. Its switching and routing platforms deliver industry-leading performance, a remarkable quality, as AI software and other trendy technologies demand enormous bandwidth. Arista complements its hardware with accompanying software for network automation, monitoring and security. But the company says its biggest innovation is the Extensible Operating System (EOS).

EOS is a piece of software that runs on every piece of Arista hardware in every environment, allowing clients to deploy seamless networks connecting public clouds, private data centers and enterprise campus workspaces. That single-product approach separates Arista from legacy vendors that use multiple operating systems, a strategy that makes network management more complex and expensive.

Cisco Systems Used to dominate the data center switching market, but Arista is now the gold standard in high-speed data center switches, and its leadership position continues to expand. Arista captured 47% market share in the first quarter of 2023, up from 36% in the same period last year, while Cisco’s market share fell by about 300 basis points to 21%.

Not surprisingly, Arista delivered a solid second-quarter financial report. Year-over-year revenue rose 39% to $1.5 billion and generally accepted accounting principles (GAAP) net income rose 65% to $1.55 per diluted share. As a caveat, hardware sales are cyclical, meaning they ebb and flow over time. Arista is undoubtedly in a bullish period right now, but investors have good reason to believe the bullishness will continue.

Morgan Stanley Analysts say AI workloads will increase cloud networking spending by 16% annually over the next four years, and the firm believes Arista is best placed to take advantage of the tailwind. But AI is one of many catalysts driving demand for faster data center networks — others include cloud computing, streaming media and 5G applications — and Arista is well-placed to benefit on all fronts given its strong market presence.

Shares currently trade at 36.2 times earnings. That’s not a cheap valuation by any stretch of the imagination, but it comes in at a three-year average, so investors should feel comfortable buying. too small Position in this growth stock today. If shares pull back sharply in the future, consider buying more.

Bank of America is an advertising partner of The Ascent, a Motley Fool company. Trevor Genevin holds positions at Arista Networks. The Motley Fool has held positions at and recommends Arista Networks, Bank of America, Cisco Systems, HubSpot, and Salesforce. Motley Fool has a disclosure policy.

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